Friday, January 31, 2014Last Update: 12:47 PM PT

Drug-Linked Deaths Support Securities Suit

SAN FRANCISCO (CN) - Shareholders can advance claims over "rosy statements" Affymax made about its now-recalled anti-anemia drug Omontys, a federal judge ruled. In a Feb. 23, 2013, statement about the recall, Affymax revealed that 2 percent of patients who used Omontys suffered life-threatening anaphylaxis, which proved fatal for 1 in 100. Omontys was injected to treat anemia-related kidney disease in adult patients undergoing dialysis. The ruling notes that, by the time of the recall, 14 deaths, nine life-threatening events and 17 other events requiring hospitalization had been reported to the FDA. Scott Stevens led a class action the next month, claiming that Affymax and four of its senior executives and directors inflated stock prices by making misleading statements to investors regarding the expanding use of Omontys, the safety and efficacy of Omontys, and the reasoning behind changes to Omontys' label. News of the recall sent Affymax's stock price plummeting by 85 percent, from $16.52 per share to $2.42 per share. The consolidated amended complaint was filed this past July against Affymax, CEO John Orwin, CFO Herbert Cross, chief medical officer Anne-Marie Duliege, and chief commercial officer Jeffrey Knapp. After they moved to dismiss, the plaintiffs filed an opposition brief identifying allegedly misleading statements from August 2012, November 2012 and February 2013. On Aug. 8, 2012, Duliege made the statement: "we haven't heard anything of concern back. It continues to progress as planned, so no nothing specific that way." The class claimed that this statement falsely represented that Omontys did not present any safety concerns, even though "defendants were well aware that the injection of Omontys caused patients severe allergic reactions, resulting in hospitalization and death." Cross also spoke that day about no "reason to update our guidance at this point." U.S. District Judge William Orrick determined this statement was not misleading, however, because it was made prior to reports to the FDA of adverse events. Orrick also found that the plaintiffs had failed to adequately allege misrepresentation with regard to the statements Orwin and Knapp made on Nov. 8, 2012. He did, however, preserve a claim related to a Feb. 12, 2013, conference call in which Orwin said that "the safety and efficacy [of Omontys] were established." "Given the serious adverse events reported to the FDA by this time, including, by the court's count, nine deaths, four life-threatening events, and sixteen other events requiring hospitalization, the plaintiffs have adequately pleaded that these statements were false," Orrick wrote. The decision notes that "five additional deaths, one life-threatening reaction and one other reaction requiring hospitalization" were reported to the FDA in the eleven days between Orwin's Feb. 12 statements and the Feb. 23 recall. "If Affymax believed that these additional adverse events warranted a total recall of Omontys, it stands to reason that a reasonable investor would have found that the adverse events reported by February 12, 2013 significantly altered the total mix of available information," Orrick added. The misrepresentation was also "material," according to the ruling. "Here, given that Omontys is Affymax's primary product, the court further finds it substantially likely that a reasonable investor would have viewed over two dozen fatal, life-threatening and other adverse reactions to Omontys requiring hospitalization as significantly altering the 'total mix' of information made available," Orrick wrote. "It is one thing to note generally that a class of drugs, to which Omontys belongs, 'increase[] the risk of death, myocardial infarction, stroke, venous thromboembolism, thrombosis of vascular access and tumor progression and recurrence,'" he added. "It is a wholly different matter to disclose to the market that this particular drug has been linked to over two dozen deaths, life-threatening conditions and other adverse reactions requiring hospitalization." Orrick dismissed Count I against Cross, Duliege and Knapp. Affymax and Orwin are in the clear on Count I only as to the August and November 2012 statements. They must still face allegations in Count I concerning the Feb. 12, 2013, statement. The ruling also dismissed Count II, which alleged that the individual defendants are liable as control persons under Section 20(a) for Affymax's alleged misstatements in violation of Section 10(b). Shareholders can still amend all the dismissed claims.